BULLETIN 1991-21

TO: ALL REGISTERED THIRD PARTY ADMINISTRATORS

AND OTHER ADDRESSEES

FROM: RON TODD

COMMISSIONER OF INSURANCE

SUBJECT: SELF-FUNDED MULTIPLE EMPLOYER WELFARE ARRANGEMENTS (MEWAs)

DATE: JULY 18, 1991

The marketing and administration of self-funded Multiple Employer Welfare Arrangements (MEWAs) has been confusing to group sponsors and insureds and has been the subject of numerous regulatory disputes since the inception of the Employee Retirement Income Security Act (ERISA) in 1974. In 1981 the Kansas legislature attempted to clarify the situation by enacting K.S.A. 40-2222, 40-2223 and 40-2224 which, in essence, provides that MEWAs are subject to Kansas law and the jurisdiction of the Kansas Insurance Department unless the MEWA or its administrator can demonstrate that it is subject to the jurisdiction of another state agency or the federal government. These statutes were clearly intended to provide a means of identifying MEWAs or other employee benefit plans that qualified for the federal preemption of state law under ERISA. Unfortunately, a number of promoters of MEWAs have attempted to circumvent both federal and state statutes by claiming that qualification as a tax exempt organization under section 501 (c) of the Internal Revenue Code was tantamount to federal jurisdiction. Others have simply created a MEWA and claimed it qualified under the ERISA preemption without even contending there was a basis for doing so.

In view of this history, the purpose of this bulletin is to specifically advise all third party administrators registered in Kansas and other interested parties of the current legal environment in Kansas regarding MEWAs.

  1. With the exception of the five associations specifically identified in 1991 Senate Bill No. 196, a copy of which is enclosed, self-funded multiple employer welfare arrangements are not recognized under Kansas law. 1991 Senate Bill No. 189 would have created a body of law defining, recognizing and establishing a regulatory framework for MEWAs. However, the bill was not enacted. Therefore, such arrangements are illegal under Kansas law.
  2. In 1983, Title I of ERISA was amended by adding a definition of a multiple employer welfare arrangement. This definition provides that a MEWA is any plan which: (a) covers the employees of more than one employer; (b) is not collectively bargained; (c) is not a rural electric cooperative; and (4) is not under common control as defined by ERISA.
  3. It is important to note that the 1983 amendments to ERISA also removes the federal preemption of state law with respect to MEWAs. Consequently, all MEWAs as defined by ERISA are subject to state regulation. Furthermore, the federal preemption does not apply to MEWAs even if they otherwise qualify as an employee welfare benefit plan under ERISA.

  4. Plans covering the employees of more than one employer that are not defined as a MEWA under the 1983 ERISA amendments are still subject to the jurisdiction of the Kansas Insurance Department unless the sponsor, agent or third party administrator can produce clear and convincing evidence that they are, if fact, an employee benefit plan which qualifies for preemption of state law under the provisions of ERISA.
  5. Any agent or third party administrator involved in the operation of a self-funded MEWA in this state is, as noted in item 1 of this bulletin, transacting the business of insurance in violation of K.S.A. 40-214 and 40-2222. Individuals or firms involved in such activity may be subject to the penalty provisions of the Unauthorized Insurers Act, K.S.A. 40-2701 et seq. and, particularly K.S.A. 40-2702(c)(2). This statute provides that in the event of the failure of an unauthorized insurer to pay any covered claim or loss, any person who assisted, or in any manner aided, directly or indirectly, in the procurement of the contract shall be liable to the insured for the full amount of the claim or loss.
  6. In addition to being liable for any claim or loss, persons involved in the transaction may also be subject to an administrative penalty as provided by K.S.A. 1990 Supp. 40-2,125 and/or the penalties provided under the Kansas Unfair Trade Practices Act, K.S.A. 40-2401 et seq.

This Department will aggressively pursue violations of Kansas law by any agent, third party administrator or other persons and organizations believed to be involved in the marketing and administration of self-funded MEWAs or other health insurance plans that are subject to our jurisdiction.

If you have any questions or comments regarding the information contained herein, please direct them to the Accident and Health Division of this Department. Otherwise, please acknowledge your receipt and understanding of this bulletin.

Ron Todd

Commissioner of Insurance